Using the 10-Ps to Distinguish a Hire-Purchase Transaction from a Sale

As individuals, we embark on numerous commercial transactions of distinct nature daily. One of such transactions is the hire-purchase transaction.A hire-purchase transaction is one under which an owner of goods lets his goods out on hire to another person (called the hirer) for agreed periodical payments and on the condition that the hirer may at his option return the goods or buy them. In other words, the owner parts with possession of the goods to the hirer who is to pay an agreed amount of money to the owner at agreed intervals. The hire-purchase transaction is regulated by theHire Purchase Act, Cap. H4, Laws of Federation of Nigeria 2004 (HPA). Section 20(1) of the HPA defines the term “hire-purchase as “the bailment of goods in pursuance of an agreement under which the bailee may buy the goods or under which the property in the goods will or may pass to the bailee”.

Due to the similarities of hire-purchase transactions with other commercial transactions, it is sometimes not so easy to distinguish hire-purchase transactions from other transactions such as contract for the sale of goods (that is, a contract whereby the seller transfers or agrees to transfer property in the goods to the buyer for a money consideration called the price: section 1(1) of the Sale of Goods Act 1893). In this article, the hire-purchase transaction will be succinctly distinguished from a sale transaction using the ten vital elements otherwise known as the 10-P’s postulated by Barrister Nat Ofo [see here].

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1. Parties

Fundamentally, there are two parties to a hire-purchase transaction. These are the owner and the hirer. An owner is one who has a bundle of rights over a thing. He has complete property in the thing and he has every right to convey it to others. On the other hand, a hirer is a person who is granted possession and use of the goods and makes periodic payments to the owner of the goods which is the subject matter of the hire-purchase agreement.

In a sale of goods agreement, on the other hand, in as much as there are also two parties involved in the agreement just like in a hire purchase agreement, the parties involved bear different names. They are referred to as the seller and the buyer. By virtue of section 62(1) of the Sale of Goods Act 1893, a seller is a person who sells or agrees to sell goods to the buyer; while a buyer is a person who buys or agrees to buy goods. In a contract for the sale of goods, the seller is ready to transfer title to the buyer and the buyer is ready to receive title of the goods.

2. Products

Another essential feature in distinguishing a hire-purchase transaction and a sale of goods agreement is the subject matter of the agreements. Section 1 of the HPA made mention of the nature and price value of goods that are to be the subject matter hire-purchase agreements. It provides that “the subject matter of a hire purchase agreement are goods whose value are not in excess of two thousand naira and motor vehicles.” Practically, only goods that are not more than two thousand naira and motor vehicles are to be subject matter of hire-purchase transactions. It is unthinkable that a person may hire any goods worth less than two thousand naira. This is because in present day, two thousand naira is of considerable low value compared to what is earned by individuals. This clearly indicates that the HPA is overdue for amendment and should be amended as soon as possible for the improvement of hire-purchase transactions.

On the other hand, in a contract for the sale of goods, there is no price limits as to the value of goods that are to be considered as the subject matter of the sale of goods agreement.

3. Possession

In a hire purchase agreement, the transfer of possession of the goods to the hirer from the owner is a major feature of a hire-purchase transaction. The hirer merely acquires possession and use of the goods and not ownership of the goods.

Whereas in a sale of goods agreement the seller parts with ownership of the goods and not merely possession as the buyer is interested in acquiring ownership (that is, the highest possible rights attached to the goods). In other words, the seller parts with general property in the goods that is the subject matter of the contract of sale of goods and the buyer acquires the title to the goods and not mere possession of the goods that is the subject matter of the contract.

4. Property

In a hire-purchase agreement, ownership of the goods that is the subject matter of the hire-purchase agreement remains with the owner. That is to say, the property does not pass to the hirer in the hire-purchase transaction. Property or title in the goods the subject matter of the agreement can only pass when the hirer exercises the option to purchase the goods and the owner accepts; then alone can property or title pass to the hirer.

In contrast, in a sale of goods agreement, the seller parts with ownership of the goods that is the subject matter of the contract while the buyer on the other hand acquires title or ownership that is the subject matter of the contract.

5. Price

In a hire purchase agreement, the owner is obligated to communicate both the hire-purchase price and the cash price (that is, the actual price for the purchase of goods) to the hirer. This is to enable the hirer to evaluate both prices and decide whether to proceed with hire-purchase agreement or to purchase the goods outright.

On the other hand, a contract of sale envisages an outright purchase and the seller is not obligated in any way to communicate any other price other than the price for the goods the subject matter of the contract. It is basically a case of cash and carry; that is, once the selling price is tendered, a buyer goes away with the goods.

6. Payment

In a hire-purchase agreement, the hirer is expected to make an initial deposit and later on make additional payment periodically to the owner and at the agreed frequency. There is no obligation to pay the whole amount at once unlike in a sale of goods agreement.

7. Place or Premises

A hire-purchase agreement sometimes takes place at the owner’s premises even when agents are involved in the course of concluding the hire-purchase transaction. All documents relating to the transaction are signed at the owner’s premises or place of business.

Whereas a sale of goods can take place anywhere: in a classroom, on the roadside, even on the internet. It is not always the case that a buyer must visit the seller’s place of business before a sale is concluded.

8. Procedure

The HPA prescribes strict procedure which must be adhered to otherwise the hire purchase agreement will be jeopardised. These formalities have been stated in section 2 of the HPA. Section 2(1) of the HPA provides that before any hire-purchase agreement is entered into in respect of any goods, the owner shall state in writing to the prospective hirer, otherwise than in the note or memorandum of the agreement, a price at which the goods may be purchased by him for cash. Section 2(2)(a) further provides that the document evidencing a hire-purchase agreement must be in writing and signed by the hirer and by or on behalf of the other party to the agreement. Also, it must be signed personally by the hirer and not by any other person on his behalf. Again, the instalments should be paid as and when due. It should however be noted that failure to comply with the above provisions in section 2 is not to render the hire-purchase transaction void ab initio and the hirer is not precluded from enforcing the agreement.

In the case of a sale, section 3 of the Sale of Goods Act 1893 provides that a contract for the sale of goods can either be in writing (with or without seal) or by word of mouth or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties. In other words, it can take any form and it does not have any specific procedure that must be strictly adhered to. Also, a buyer’s agent can sign on behalf of his principal for example a carrier concluding the contract of sale on the buyer’s behalf. A wife can sign on behalf of her husband and vice versa unlike in a hire-purchase agreement where the hirer has to sign personally.

9. Provisions

The HPA regulates all hire-purchase transactions. The HPA consists of several provisions that regulate hire-purchase transactions. For example, section 2 of the HPA stipulates the procedure that is to be adhered to in order for a hire-purchase agreement to come into being. The HPA also stipulates terms that are prohibited from being in a hire-purchase agreement and if such prohibited provisions are incorporated into the agreement, such provisions are void and cannot be enforced against the hirer. The hire-purchase agreement will be taken as though those prohibited provisions were not contained in it. In addition, the HPA provides for some terms which even though they are not contained in the hire-purchase agreement are deemed to be part of the agreement and must be taken into account in interpreting the hire-purchase agreement. These are terms implied in every hire-purchase agreement.

In a sale of goods situation, the statute regulating the transaction is the Sale of Goods Act 1893. It consists of many sections with different provisions regulating sales of goods transactions.

10. Penalties

The HPA made provisions for penalties which characterise hire-purchase transactions. For example section 6 of the HPA provides for duties of parties to furnish information and it also states the penalties in event of any failure. This pertains to hire-purchase transactions only.

Whereas in a sale of goods agreement there are no penalties stipulated for anything in the Sale of Goods Act.

Conclusively, from the above, it can be seen that hire-purchase transactions are indeed distinct from sale transactions. Even though they seem alike, they are certainly distinct and should not be confused. The 10-Ps postulated by Barrister Nat Ofo [see here] facilitates distinguishing a hire-purchase transaction from a sale transaction. A synopsis of the 10-Ps’ test is available here.